Krishen Rangasamy, analyst at National Bank Financial, notes that China’s annual inflation rate jumped to 2.8% in July, the highest in a year and a half.
Key Quotes
“Does that mean the People’s Bank of China will backtrack from its accommodative policy stance? Don’t bet on it. That’s because China’s rising inflation these days has little to do with mounting capacity pressures and more to do with idiosyncratic factors.”
“Retaliatory tariffs by Beijing on U.S. agriculture have meant more food imports from other countries, often at higher prices than would otherwise be the case. Shortages due to the swine fever epidemic have also driven up pork prices sharply. And since food accounts for a significant weight of China’s CPI, the inflation uptick should not be really surprising.”
“In those circumstances, it’s best to look at non-food inflation to get a better idea of underlying price pressures in the world’s second largest economy. As today’s Hot Chart shows, the annual non-food inflation rate fell in July to just 1.3%, the lowest in three years. That, coupled with reports of declining producer prices, arguably better reflect an economy that is losing steam.”
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